Don't Shred Those Tax Documents Yet

Once you complete this year’s taxes, you may wonder what to do with that pile of records, 1099s, receipts, and bank statements.

The IRS recommends holding onto any documents related to the income you’re reporting or any deduction or credit you’re claiming, including:

• Proof of income, including W-2s and 1099s, bank and brokerage statements, K-1 forms, and spousal-support payment records
• Bills and invoices, credit card statements, mileage logs, and canceled checks
• Financial records related to real property, including paperwork from the purchase or sale of a home and all documents associated with the costs of buying, selling, or managing rental properties
• Investment records related to stock transactions, IRAs, and other retirement accounts

If you’re unsure whether to keep a document or not, err on the side of caution and store it in your files. How long you should hang on to all those documents varies depending on the action, expense, or event that the document records. The IRS has the right to review all tax returns filed during the Period of Limitations. This is the time when you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax. That period is typically three years from the date you filed for any given year.

Consider keeping some documents past three years. For example, the IRS recommends keeping employment tax records for at least four years after related taxes become due or are paid, whichever is later. Keep your property tax records until the period of limitations expires for the year you dispose of the property. Retain your tax returns and related documentation for six years or more if you have reason to believe you may have underreported your income by 25% or more.

It’s best to create digital copies of all your documents. That way, if the printed version is lost or destroyed, you’ll have a backup.

We are happy to work with you and your tax professional to help keep your financial records up-to-date and create a personal financial plan tailored to your habits and lifestyle. Don’t hesitate to reach out if you have questions or need help.